SoftBank-backed OYO now 100,000 rooms brand, eyes another 100,000 by Mar 1

SoftBank backed hospitality start up OYO, which began its journey with a single hotel in January 2013, has now become an industry giant with a network of over 100,000 rooms, the first by any Indian company. The branded budget hospitality network is adding 10,000 new rooms every month and is aiming to double the inventory to 200,000 rooms at the end of FY19.

An inventory of over a lakh rooms in the Indian market puts OYO way ahead of other players. Marriott, for instance, has about 23,000 rooms in the country while Taj Hotels has about 17,000 rooms. It is true that the segments in which OYO operates is different to these players. However, the start up has demonstrated capacity to scale up at a much quicker pace than was expected.

"This is a huge milestone not just for us but the greater hospitality sector in general. It demonstrates adequately that the Indian hospitality market in the last five years has come of age. Earlier, there was a general view that Indian hospitality cannot scale. You saw all the chains struggling to get assets and expand. This milestone is not just good for us but also for a lot of other hospitality players as it reinforces the fact that the demand for quality living spaces remains high and supply is the only problem. If you create them, demand will follow," Ritesh Agarwal, founder and chief executive officer at OYO told Business Standard.

OYO, which operates between at price points up to Rs 3,000 per room night, said it is seeing a company level occupancy of seventy per cent for its 100,000 rooms spread across more than five thousand assets in the country. The company started with the concept of offering budget rooms to users under the OYO Rooms brand. It then pivoted from a simple distributor model — where it sold the part inventory of a hotel as OYO Rooms, while the hotel sold individually on online travel agencies (OTAs) — to an exclusive model where all rooms are OYO-branded. Its next major step was foray into slightly premium offering under OYO Townhouse. It also has presence in homestays under the OYO Home brand. Its latest move was to get into apartments aimed at serving project-based stays of corporate travellers under the Silverkey brand.

OYO's rapid expansion was a well planned strategy but not without challenges. "The journey from a few hundred rooms to five thousand rooms is just an execution question. But getting to 100,000 rooms required very different levels of execution and competence is required. We took a long-term view...in early of 2017 we had this milestone of 200,000 in mind and we had been investing for it over last two years," said Agarwal, now 24 year old.

OYO is seeing a per room realisation of Rs 1,650 on an average after the discounts and incentives. At seventy per cent occupancy and 100,000 rooms that implies annual revenue of Rs 42 billion. “Our run rate is not very far from a billion dollar at an annualised level. With 100,000 keys on a stable state you should be able to deliver that kind of revenue,” maintains Agarwal.

OYO is not profitable at a corporate level. In FY17, it made a loss of Rs 3.25 billion, down sharply from Rs 4.96 billion in FY16. Agarwal said the loss will reduce further when FY18 results are announced. "The good news is that India margin is continuing to expand. We are making 22 per cent in terms of margins at an asset level which is very attractive. If we remove the 2.5 per cent marketing cost it is still very attractive," he said. The company, which has $240 million in cash and cash equivalent, is in an investment mode and has recently announced its foray into China where it has an inventory of 11,000 rooms.

But will OYO stop at 200,000 rooms? No, says Agarwal. “We are large as a branded chain but there are 4.3 million unbranded rooms waiting to be converted into a good quality branded chain...that is the big opportunity... India deserves at least one hotel chain with that kind of scale of half a million rooms,” he added.